Is your compensation model aligned with client success?

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Is your compensation model aligned with client success?

There are three ways that advisors may be compensated: through commission on trades; as a percentage of assets managed; or as a fee-for-advice model.

You might choose the model most appropriate for your target demographic, or you might use a combination of two or even all three methods to appeal to a wider client base.

Regardless of your compensation method, the transparency requirements of the CRM2 rules mean that clients are looking more closely than ever at how much they are paying you and what they are getting in exchange.

At first glance, it might appear that the returns speak for themselves, but there’s more to it than this. Ensuring satisfied clients and thus your own continuing success means going beyond simply matching or outperforming the benchmark.

  1. Open and transparent conversations
    Success as an advisor is based on trust, and that requires complete honesty at every stage of the relationship. Take time to get to know the client, so that you can create a portfolio structured appropriately for that person. Then be clear and straightforward in your communication, whether you are delivering bad news or good.
  2. Client education
    Make sure the client understands every aspect of their portfolio — what each investment is, how it works, its potential upsides and downsides. Explain why you are recommending these specific investments, how they work together to create a diversified portfolio, and why you think this particular portfolio structure is right for the client. Explain how their investments are expected to perform relative to the benchmarks. Never assume that a client knows something.
  3. Regular communication
    Periodic reviews are essential, and not simply as a regulatory requirement. Use the available technologies that can make reviews both easier and more effective. Carte Core, the Carte Wealth Management Inc. customer relationship manager (CRM) tool, can be set up to remind you when each client’s annual review is coming up, and can also assist you in sending out messages to set up meetings. You can also use it to capture the results of each session so you have a record of what was discussed, what actions you agreed on and any follow-ups that are required.
  4. Strong value proposition
    Consider yourself from the point of view of your clients. What is it that you bring to them? Do you have a knack for finding promising start-ups just before they take off? Are you skilled at explaining even complex investments in a way that all clients can understand? Are you available anytime and anywhere? Focus on whatever it is you bring to the table that sets you apart from major competitors such as bank advisors and robo-advisors.
    At the end of the day, you want to create a relationship where the client doesn’t evaluate your worth based simply on the returns you generate. To truly claim success, your clients must understand what value you bring to them and they must appreciate that value, no matter how you are compensated.

To learn more about how to connect with your clients about compensation? Let’s connect. We’re here to help!

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